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TRUE  VS.  FALSE 

Currency    Reform 

•  •••U  I  •••• 

A.  J.  FRAME, 

President  of  the  Waukesha  National  Bank, 


-AND- 


Ex-President  Wisconsin  Bankers'  Association. 


READ  BEFORE 
THE  MILWAUKEE  BANKERS'  CLUB, 

AT  MILWAUKEE,  APRIL  15,  1899. 


WAUKESHA  FREEMAN    PRINT. 


A    STRONG    FOUNDATION    STANDS    THROUGH 
STORIVI  AS  WELL  AS  SUNSHINE. 


READ  SOME  PRESS  AND   PRIVATE   COMMENTS. 

New  York  .luunial  of  CoinmiTcM'  sjiys— •"An  a(liniral)lc  uddrcss."" 

New  York  Ami'ricaii  IJankcr — "'Willi  the    iircmiscs   and  conclusions   of   the    pai)or 

we  arc  in  full  accord.     It  is   a   straiif^cly    neglected   side   of    tlie   question, 

when  we  consider  tiie  mass  of  writin<>:  and  speakinjjc  wliicii    is  done  on   tli<^ 

currency  (luestion,  etc." 
New  York  Financier— "".X  strong  currency  plan,"  nuotiug  liberally. 
New  York  Times  devotes  a  column  in  (juotinK  from  its  pages. 
Chica-^o  Tribune  calls  it  a  '"destructive  criticism  of   Asset  Cumuicy  '    and   quotes 

abiMit  a  coluiuM  from  it. 
Milwaukee  Sentinel  i)ublislies  tlu^  paper  in  full. 
The  Milwaukee  Journal  says— '"It  can  be  truthfully  said  the  address  is   able,   well 

prepared  and  full   of   information   on   each    point  discussed,"    and   quotes 

liberally. 

SOME  PRIVATE  COMMENTS. 

First  National  Bank  of  Milwaukee,  Wis. 
Dear  Sir— I  have  carefully  read  your  paper  reviewing  ihe  work  of  the  Indian- 
apolis Monetary  Commission. 

It  shows  great  research,  is  al)ly  i»resentod,  and   it  should   be   very   interesting 
to  all  intelligent  students  of  systems  of  currency  and  finance. 

I  consider  it  a  strong  contril)ution  to  the  literature  of  the  subject. 

Yours  Trulv. 

F.  (i.  iilGELOW,  President. 

First  National  Bank  of  Chicago,  III. 
Dear  Sir— I  have  carefully  read  your  paper  on  "True  vs.  False  Currency 
Reform"  and  think  it  a  very  creditable  one.  You  have  goiu^  very  fully  into  the 
subject,  your  arguments  are  well  made,  and  your  suggestions  are  along  conserva- 
tive lines.  The  paper  is  well  worthy  of  circulation  and  it  will  disseminate  valu- 
ble  information  which  is  much  needed  in  connection  with  the  currency  question 
at  present. 

Yours  Verv  Truly, 

JAS.B.  FORGAN,  Vice  Prest. 

N.  W.  Harris  &  Co.,  Chicago,  III. 
Dear  Sir — I  say  Amen !  to  all  your   arguments.    It  seems  to  me  that   any  one 
who  has  studied  the  question  at  all  will  endorse  your  sound  logic.     It  contains   an 
abundance  of  meat  (not  embalmed)  and  strikes  right  home.    I  am  sure  the   public 
will  be  interested  in  it. 

E.  E.  BLACK,  of  the  Firm  of  N.  W.  Harris  &  Co. 

Cheyenne,  Wyoming. 
Dear  Sir— I  have  read  with   much    interest  your  article  on    "True   vs.    False 
Currency  Reform"  and  beg  to  second  your  most  excellent  suggestions.     You    have 
apparently  studied   the  question  from  a    practical   standpoint.     Practical   sugges- 
tions from  practical  men  will  have  a  good   effect  in   shaping  financial   legislation. 
HARRY  B.  HENDERSON.  State  Bank  Examiner. 


TRUE  vs.  FALSE. 


Currency  Reform. 


Solomon  said  ''He  that  answcretJi  a  matter  before  he 
JiearetJi  it,  it  is  folly  and  shame  unto  him."' 

The  advocates  of  the  Monetary  Commission  and  McCleary 
so-called  Currency  Reform  Bills  have  had  their  day  in  court. 
Will  the  public  give  a  respectful  hearing  to  the  dissenters  on 
some  points,  and  then  render  its  verdict? 

The  main  points  of  contention  of  the  advocates  of  those 
bills  are: 

1st.  The  unquestioned  maintenance  of  the  gold  standard 
in  the  U.  S. 

2d.  The  retirement  of  the  U.  S.  Government  from  the 
Banking  business  by  the  withdrawal  of  the  U.  S.  Notes  from 
circulation. 

3rd.  In  the  accomplishment  of  these  objects  the  Banks 
of  the  country  are  to  assume  the  issue  of  currenc)',  redeemable 
in  gold  coin,  as  a  substitute  for  the  Government  issues,  thus 
relieving  the  Government  of  gold  redemption. 

4th.  Instead  of  the  Bank  currency  being  secured  by  a 
deposit  of  U.  S.  Bonds,  as  is  now  done,  the  issues  will  be 
secured  by  a  first  lien  on  the  assets  of  the    issuing   Banks. 

5th.      The  withdrawal  of  Gold  Certificates. 

6th.     The  Elastic  Problem. 

7th,      The  authorization  of  Branch  Banking. 

The  first  point  as  to  needed  legislation  to  cover  the  un- 
questioned maintenance  of  the  gold  standard  is  not  a  debatable 
one,  as  all  friends  of  True  Currency  Reform  concede  the 
necessity  for  it. 

The  second  point  seems  to  be  a  debatable  one  with  many 
good  people  in  this  country,  but  I  am  clearly  of  the  opinion 
that  they  are  in  error  in  their  conclusions,  as  the  history  of  the 
progressive  nations  of  the  earth  as  well  as  our  own  experience 
proves. 


2  — 

Why  does  Germany  not  issue  a  Government  Currency  to 
nave  borrowing  money?  Why  do  not  Britain  with  a  bonded 
debt  three  times  ours  and  France  with  a  like  debt  six  times 
ours,  issue  currency  to  save  interest  on  their  debts? 

Because  these  old  nations  have  proved  by  practical  expe- 
rience that  serious  trouble  is  an  almost  certain  result  of  Politi- 
cal bodies  trying  to  regulate  the  quantity  of  money  in  any 
country,  and  it  is  written  over  and  over  again  in  the  works  of 
the  best  writers  on  Political  ICconomy  that  it  is  nut  the  prov- 
ince of  Government  to  look  to  the  quantity  of  money  in  any 
country.  It  is  only  imperative  that  the  quality  should  be  un- 
questioned and  the  needs  of  commerce  will  settle  the  quantity. 

A  NOISOME  pkstilp:nck. 

What  invited  the  panic  of  1893  ?  Politics  and  distrust 
bred  it.  Distrust  is  the  father  of  business  paralysis,  and 
scheming  politicians,  pessimists  and  calamity  shriekers  are  the 
hens  that  incubate  the  eggs.  Their  continual  cackling  is  a 
noisome  pestilence  in  the  land.  I  challenge  any  Populist, 
Pessimist  or  Politician  to  point  to  any  time  in  any  country  in 
the  World's  Histor)',  when  laboring  men  were  better  paid, 
better  housed,  better  clothed  or  better  fed,  than  in  the  United 
States  to-day.  The  sad  spectacle  of  the  richest  and  most 
prosperous  nation  on  the  globe,  with  the  smallest  comparative 
debt,  trailing  its  credit  in  the  mire  of  distrust,  because  it  would 
not  settle  absolutely  in  the  minds  of  the  public  by  a  simple  res- 
olution that  it  would  under  all  circumstances  pay  all  its  obliga- 
tions in  a  100  cent  dollar,  is  indeed  pitiable. 

Neither  Republicans  nor  Democrats  in  their  own  private 
business  commit  voluntary  suicide  by  such  acts.  It  is  cause 
for  gratitude  that  after  a  campaign  of  education — coupled  with 
a  more  potent  power  to  wit:  our  innumerable  object  lessons  in 
prosperity  vs.  the  predictions  of  the  calamity  prophets — the 
people  have  again  spoken  rightly.  The  repudiators  have 
again  been  repudiated,  and  with  all  the  legislative  branches  of 
the  Ciovernment  after  March  4th,  1899,  in  the  hands  of  the 
sound  money  party-^thanks  to  the  noble  army  of  Gold  Demo- 
crats— we  should  without  fail  at  the  next  session  of  Congress, 
place  upon  the  Statute  Books  of  the  U.  S.  a  law  making  it 
obligatory  opon  the  Secretary  of  the  Treasury,  and  all  other 
officers  of  the  Government,  to  pay  all  obligations  of  this  Gov- 
ernment in  that  standard  of  value  recognized  by  the  progress- 
ive nations  of  the  earth,  the  Gold  Standard,    and   to  sell  bonds 


— 3  — 

if  necessary  to  maintain  that  Standard.  When  such  a  law  is 
once  put  upon  the  Statute  books,  no  free  silver  "without  wait- 
ing for  any  other  nation  On  earth"  President  or  Secretary  of 
the  Treasury  would  dare  disobey  its  mandates;  its  repeal 
would  require  a  complete  overturning  of  all  branches  of  our 
Government,  fortunately  an  impossibilit}'  for  many  years  to 
come. 

Then  if  the  Government  desired  to  place  any  more  loans, 
par  or  better  could  be  had  for  a  2^  per  cent.  -bond.  It  such  a 
resolution  had  been  upon  the  Statute  books  when  the  late  sale 
of  $200,000,000.,  of  bonds  took  place,  a  neat  little  sum  of  not 
less  than  ten  million  dollars  might  have  been  saved  in  ten 
years  in  interest  alone.  The  panic  of  '93  is  the  legacy  to  our 
people  of  a  Government  Currency  regulated  by  apolitical  body 
and  our  present  duty  is  to  apply  an  ample  remedy  which  shall 
prevent,  as  far  as  possible,  its  recurrence  What  I  consider  to 
be  such  a  remedy  will  be  presented  later,  together  with  the 
discussion  of  the  third  point. 

ASSET  CURRENCY. 
Now  for  the  fourth  point.  I  have  been  from  the  very 
first  opposed  to  the  Baltimore  plan  of  issuing  currency  by  banks 
secured  upon  a  first  lien  on  their  general  assets.  I  have  given 
the  matter  careful  consideration,  have  studied  the  different 
monetary  systems  of  the  enlightened  nations  of  the  earth,  and 
after  37  years  of  practical  banking  experience,  I  unhesitatingly 
declare  that  the  proposition  to  give  to  our  thousands  of  banks, 
large  and  small,  in  city  and  country,  authority  to  issue  cur- 
rency, secured  by  a  first  lien  on  assets  is  unsound  and  has  not 
a  parallel  on  earth,  the  Canadian  system  not  excepted.  I 
know  I  am  far  from  being  alone  in  my  views  on  this  subject. 
The  vigorous  and  telling  arguments  of  Comptroller  Dawes  in 
his  report,  confirm  it.  Correspondence  and  personal  contact 
with  high  government  officials,  eminent  bankers  and  even 
members  of  the  Monetary  Reform  Commission  prove  my  state- 
ment. The  measure  1  call  populir>tic,  with  only  one  safety 
valve,  the  Government  supervision  of  the  banks.  But  that  is 
not  adequate  to  prevent  distrust  and  disaster.  The  advocates 
of  asset  currency  are  continually  quoting  Canadian,  Scotch, 
English,  French,  German  and  other  foreign  systems  as  well  as 
systems  in  the  U.  S.  to  prove  their  arguments.  What  are  the 
facts.-*  Let  us  reason  together  a  little.  The  Sound  Currency 
Red  Book  is  a  strong  advocate  of  asset  currency  and  labors  to 
prove  parallelisms.     In  refuting  its  arguments,  I  quote  from  its 


own  pages.  Under  the  head  of  "The  World's  Bank  Note 
Systems"  by  L.  Carroll  Root,  pages  189  to  204,  189)^  issue,  we 
find  the  following  facts,  which  facts  are  corroborated  by  the 
"Report  of  the  Monetary  Commission"  pages  277  to  308  under 
the  head  of  "Instances  of  Bank  Notes  based  on  Commercial 
assets." 

(iRKAT   BRITAIN. 

The  Bank  of  England  issues  ;i^  16, 800, 000  of  notes  on  a 
deposit  of  the  same  amount  of  Government  Securities,  It  has 
30  to  40  million  pounds  sterling  in  notes  outstanding  constant- 
ly in  addition,  but  every  note  has  its  value  in  gold  behind  it. 
The  large  private  and  chartered  banks  of  England,  Scotland 
and  Ireland  in  1844  and  1845  were  limited  to  the  amount  of 
their  uncovered  notes  to  banks  then  doing  business,  and  70  per 
cent,  of  the  right  of  issue  of  any  of  these  banks  going  out  of 
business  since  that  date  has  reverted  to  the  Bank  of  England. 
Since  1 844  this  has  reduced  the  maximum  uncovered  issues 
;^"4, 000,000  and  added  ;i^2,8oo,ooo  to  the  Bank  of  England 
issues.  Of  late  the  whole  amount  of  asset  currency  issued  by 
all  the  big  106  issuing  banks  of  England,  Scotland  and  Ireland 
has  been  approximately  the  insignificant  sum  of  six  million 
pounds  sterling  or  about  one-half  of  the  maximum  allowed, 
and  all  the  rest  of  their  circulation  has  Government  securities 
or  gold  behind  it.  What  is  the  secret  .''  Unlimited  liability 
of  every  -bank  stockholder  for  every  note  in  circulation.  The 
people  there  have  not  forgotten  that  those  words  "Unlimited 
liability"  cost  a  ;^i,000  stockholder  in  the  great  City  of  Glas- 
gow Bank  with  its  131  branches  (which  failed  in  1878  for 
seventy  million  dollars)  his  whole  fortune  of  more  than  a 
million  pounds  sterling,  as  well  as  ruining  thousand  of  families 
in  the  south  of  Scotland.  The  clear  intent  of  Britain  is  to 
entirely  eliminate  bank  note  currency  from  her  circulation 
excepting  only  that  of  the  Bank  of  England. 

FRANCE. 

Since  1848  the  Bank  of  France  has  had  the  sole  right  of 
issue  in  France.  Although  able  men  have  claimed  this  issue 
as  asset  currency,  I  cannot  understand  the  force  of  their  rea- 
soning in  the  face  of  the   facts. 

The  Bank  of  France  of  late  years  has  had  approximately 
$700,000,000  of  circulating  notes  outstanding,  and  has 
kept  about  90  per  cent,  of  its  outstanding  notes  in 
coin  in  its  vaults.  That  great  reserve  of  coin  naturally 
inspires  confidence.      The  balance  of  10  per  cent:  asset  currency 


— 5— 

even,  is  practically  covered  by  loans  to  the  Government,  so  the 
bank  could  pay  every  dollar  of  its  notes  by  selling  its  Govern- 
ment paper  without  calling  a  dollar  ot  its  loans.  The  Bank  of 
France  is  more  a  bank  of  issue  than  a  bank  of  deposit,  as  its 
issues  have  averaged  five  times  its  deposits  for  the  past  five 
years. 

GERMANY. 
The  Imperial  or  Reichsbank  of  German)-  is  allowed  a 
maximum  issue  of  uncovered  notes  to  the  amount  of  about  50 
million  dollars,  but  does  not  exercise  the  privilege.  For  ten 
years  past  it  has  had  a  metallic  reserve  of  over  90  per  cent,  on 
an  average  circulation  of  about  240  million  dollars.  The  other 
32  large  banks  are  allowed  to  issue  asset  circulatijn  to  the  ex- 
tent of  the  comparatively  insignificant  sum  of  22  million  dollars, 
any  excess  being  covered  by  treasury  notes  (which  notes  are 
fully  covered  by  gold  in  the  Government  war  chest),  notes  of 
other  banks,  or  coin.  On  page  192,  Root  says  "The  National 
or  (Imperial)  Bank  is  the  center  of  the  system,  with  the  evident 
intent  on  the  part  of  the  Government  ultimately  to  transfer  to 
it  the  ''sole  7'ight  of  issue." 

CANADA. 
Canada  has  38  banks  with  over  60  millions    of    dollars    of 
capital  and  28  millions  of  surplus.      They  issue  currency    based 
on  a  5  per  cent,  deposit  and  first  lien  on  assets. 

These  large  banks  are  very  conservatively  managed  largely 
by  able  British  or  Scotch  financiers  who  know  the  penalty  of 
bad  banking.  No  bank  with  less  than  a  half  million  dollars  of 
subscribed  capital  is  allowed  to  issue  currency.  (Our  proposi- 
tion is  to  grant  the  right  to  banks  having  as  low  as  $25,000. 
capital.) 

The  following  countries  have  only  one  bank  of  issue, 
to-wit: 

Capital.      Reserves  required  on  notes  issued 
The  Bank  of  Austria 45  mil.  dols.  .40  per  cent,  coin  and  (iO  per  cent. 

quick  assets. 
Bank  of  Belgium 10  mil.  dols.  .33i^  per  cent,  coin    on    notes  and 

deposits. 
Bank  of  Netherlands. .  .6  4-10  mil.  dols.  .33i  per  cent,   coin   on   notes  and 

deposits. 

Bank  of  Norway 3i  rail.  dols.  .50  per  cent,  as  to  notes  in  coin. 

National  Bank  of  Denmark.  7i  mil.  dols..37i  per  cent,  as  to  notes  in   coin 

and    150   per    cent   good    assets 

besides. 
Imperial  Bank  of  Russia.. 20  mil.  dols.. over  100  per  cent. 

The  latter  bank  held  July  ist,  1898,  nearly  600  million 
dollars    gold  (the    largest  single  holding  in    the    world,    see    U. 


— 6  — 

S.  mint  report  iSQcS,  page  494)  and  for  15  years  has  constantly 
been  accumulating  it.  Russia  announced  in  June  it  would  pay 
all  its  demand  notes  in  gold.  There  are  three  large  banks  in 
Italy  and  three  in  Greece. 

Sweeden  has  a  large  .state  bank  and  some  private  banks 
that  issue  currency  based  on  a  dei)osit  of  mortgages,  etc.,  in 
public  custody. 

Switzerland  is  now  discussing  a  reformation  of  its  banking 
systerh. 

Is  it  not  clear  from  the  foregoing  that  the  great  central- 
ized institutions  of  European  nations  are  assuming  the  issuing 
functions  of  the  currency  ?  As  a  conclusive  proof  that  the 
trend  of  the  European  banks  is  toward  a  metallic  reserve  for 
practically  all  note  issues  and  that  they  ar<:  gradually  eliminat- 
ing asset  or  credit  currenc)',  I  respectfully  refer  you  to  an 
article  in  "L  Economiste  Europeen"  of  October  14,  by  Prof. 
Edmund  Thery,  (or  to  Bankers' Magazine,  N.  Y.,  for  December 
1898,  page  903.)  He  declares  that  all  European  Banks  of  cir- 
culation   in 

1883  had  a  gold  reserve  of 29  per  cent,  of  circulation 

"  silver  reserve  of  Ki     "      "  " 

Total  coin  reserve  of 45     ''      "  " 

1897  they  had  a  sfold  reserve  of 57     "      "  " 

"  sliver 17     "      "  '• 

Total  coin  reserve 74     "      "  " 

The  gold  coin  increasing  from  700  million  dollars  to  1700 
millions  in  the  past  15  years.  Further  he  says:  "In  all  sound 
money  countries  the  bank  note  is  in  course  of  becoming  a  sim- 
ple gold  certificate  redeemable  on  demand.''  That  I  affirm  is 
"True  Currency  Reform." 

What  about  former  New  England  Banking,  The  Suffolk 
system,  The  banks  of  Indiana  and  Louisana  and  several  others 
quoted  by  the  advocates  of  the  Monetary  Commission  plan  .-* 
Simply  this:  On  pages  302,  3  and  4  of  the  Report  of  the 
Monetary  Commission,  under  the  head  of  New  England  Bank 
Currency,  we  find  that  "in  some  states  an  unlimited  liability 
for  both  notes  and  deposits  was  enforced  upon  the  oflficers  in 
case  of  mismanagement.  In  some  instance:^  the  stockholders 
were  liable  to  the  amount  of  their  stock  for  the  ultimate  pay- 
ment of  the  notes;  and  in  Rhode  Island  they  were  subject  to 
unlimited  liability."  In  the  Sound  Currency  Red 
Book  heretofore  referred  to,  in  an  article  by 
Horace  White,         pages       207         to       210         we       find 


— 7— 

under  the  head  of  "State  Bank  of  Indiana" — "CJn  all  applica- 
tions for  loans  above  $500.,  a  majorit)'  vote  of  five-sevenths  of 
the  board  was  necessary,  and  this  must  be  entered  on  the 
minutes  with  the  names  of  the  directors  so  voting.  Directors 
were  individually  liable  for  losses  resulting  from  infraction  of 
the  law,  unless  they  had  voted  against  the  same  and  caused 
their  votes  to  be  entered  on  the  minutes,  and  had  notified  the 
Governor  of  the  State  of  such  infraction  forthwith,  and  had 
published  their  dissent  in  the  nearest  newspaper.  Any  absent 
director  should  be  deemed  to  have  concurred  in  the  action  of 
the  board,  unless  he  should  make  his  dissent  known  in  like 
manner  within  six-months." 

"LOUISIANA  BANK  ACT  OF    1842." 

We  find: 

1st.  A  specie  reserve  equal  to  one-third  of  all  its  (the 
Bank's)  liabilities  to  the  public. 

2d.  The  other  two-thirds  of  its  liabilities  to  be  represent- 
ed by  commercial  paper  having  not  more  than  90  days  to    run. 

3rd.  All  commercial  paper  to  be  paid  at  maturity,  and  if 
not  paid,  or  if  an  extension  were  asked  for,  the  account  of  the 
party  to  be  closed  and  his  name  to  be  sent  to  the  other  banks 
as  a  delinquent. 

4th,  All  banks  to  be  examined  by  a  board  of  State 
officers  quarterly  or  oftener, 

5th.  Bank  directors  to  be  individually  liable  for  all  loans 
or  investments  made  in  violation  of  the  law,  unless  they  could 
show  they  had  voted  against  the  same  if  present  etc. 

The  National  Bank  rule  for  reserves  is  6  per  cent."  cash 
and  9  percent,  with  reserve  agents,  total  15  per  cent,  for 
country  banks  and  25  per  cent,  cash  for  city  banks.  In  a  com- 
parative sense,  how  much  90  day  commercial  paper  do  countr\- 
banks  hold,  or  even  city  banks,  that  is  paid  when  due.' 

Reference  is  further  made  to  the  Massachusetts  and  the 
Suffolk  Bank  systems,  but  for  lack  of  time  I  refer  any  one 
desiring  further  light  to  the  pages  in  question. 

I  will  simply  say  that  I  have  no  doubt  that  the 
underlying  cause  why  the  systems  were  abandoned 
was  because  of  the  much  more  rigid  rules  that 
governed  the  systems  and  larger  liability  of  the  directors  for 
their  acts,  than  are  the  regulations  governing  the  present  Na- 
tional Banking  system.  I  have  the  best  of  reasons  for  assert- 
ing that  the  rules  now  governing  the  National  Banking  System 
are  about   as   rigid   as  the   bankers  will  stand  and  maintain  the 


system.  Ranking  systems  are  like  the  prohibition  question. 
When  you  draw  the  lines  too  closely,  the  personal  liberty  tem- 
perate drinker,  who  ordinarily  votes  to  regulate  the  traffic, 
kicks  traces  and  then  the  bars  all  come  dowg^  I  affirm  that  our 
present  National  Banking  system  is  the  best  and  safest  all 
around  system  ever  devised,  and  a  happy  medium  between 
two  extremes  of  too  loose  and  too  rigid  banking  laws. 

I  ask  with  all  seriousness  is  there  a  parallel  case  on  earth 
to  the  present  proposal  giving  the  rif  ht  to  issue  currency  by  as 
many  of  the  3,600  independent  National  banks  in  the  United 
States,  covering  big  city  and  small  $25,000  country  banks  as 
well  as  the  thousands  of  others  that  may  adopt  the  National 
Currency  Act,  to  the  full  amount  of  their  capital  stock,  se- 
cured by  a  5  per  cent,  cash  deposit,  and  a  first  lien  on  assetts  .'' 
I  can  find  none.  I  affirm  it  is  s'mply  a  discarded  unsuccessful 
experiment  of  older  nations. 

McCLEARY  BILL. 

The  McCleary  plan  of  issuing  currency  provides,  that 
banks  must  issue  from  25  to  40  per  cent,  of  their  capital  based 
on  first  lien  on  assets  and  an  equal  sum  on  the  same  plan  as 
soon  as  the  Government  bonds  now  deposited  are  withdrawn, 
which  withdrawal  the  bill  provides  for  in  the  course  of  a  few 
years,  and  a  still  further  like  sum  in  what  he  calls  National 
Reserve  notes,  which  are  to  be  given  to  banks  upon  the  de- 
posit by  each  bank  with  the  Comptroller  of  the  Currency  of  a 
sum  in  legal  tender  notes  equal  to  from  25  per  cent,  to  40  per 
cent,  of  its  capital  stock  and  receiving  in  return  therefor  an 
equal  amount  of  National  Reserve  Notes.  Then  the  bank 
must  redeem  all  notes  issued  in  gold  on  demand.  The  issue  of 
reserve  notes  the  bill  provides  shall  be  finally  redeemed  and 
paid  for  in  gold  by  the  U.  S.  Government  in  case  of  failure  or 
liquidation  of  the  issuing  bank.  Is  it  not  a  serious  question 
whether  or  not  the  banks  are  willing  to  permanently  loan  to 
the  Government  from  25  to  40  per  cent,  of  their  capital  out- 
right without  interest,  for  the  privilege  of  having  double 
the  amount  of  National  Reserve  Notes  outstanding,  in 
notes  based  on  first  lien  on  assets,  and  the  burden 
of  redeeming  their  whole  circulation  laid  upon  the  banks  issu- 
ing the  currency.''  1  do  not  care  to  express  an  opinion.  It  is 
clearly  open  to  the  objections  raised  as  to  the  issue  of  currency 
secured  on  general  assets. 

As  a  prudent  proposition,  who  would  deposit  a  sum  equal 
to  80  or  100  per  cent,  of  the  capital  of  any  or  all   banks   asking 


— 9— 

it,  even  if  you  hid  a  first  lien  on  the  bank's  assets?  Yet  this 
in  fact  is  the  proposition  presented  in  the  bills  under  consider- 
ation, 

DEPOSITORS  LOSE. 

The  forcible  argument  of  Comptroller  Dawes  that  asset 
currency  in  case  of  failure  of  banks,  tends  to  reduce  the  divi- 
dends to  depositors  as  compared  with  the  present  system  with 
a  bond  deposit,  is  perfectly  clear  to  my   mind. 

Banks  in  trouble  always  strain  every  point  to  keep  from 
suspending  by  parting  with  quick  assets  at  command  to  -raise 
cash,  and  in  case  of  failure  under  the  proposed  law  there  are 
no  Government  bonds  on  deposit  to  secure  outstanding  notes, 
therefore  the  note  holders  having  the  first  lien,  take  the  cream 
of  the  assets  and  leave  the  dregs  to  the  unfortunate  depositors, 
under  their  second  lien.  Under  the  bond  deposit  rule,  the 
bonds  can  neither  be  spouted  nor  sold,  therefore  they  take 
care  of  the  circulation  outstanding  and  leave  a  handsome  sur- 
plus in  addition  to  divide  among  the  depositors  along  with  the 
proceeds  of  the  general  assets.  Is  it  not  clear  under  such  cir- 
cumstances that  distrust  is  sure  to  seize  upon  the  great  army 
of  depositors  when  financial  troubles  are  pending,  because  of 
the  fact  that  in  case  of  failure  their  claims  are  a  second  lien  on 
assets  and  their  dividends  will  be  abridged,  and  coupled  with 
the  unreasoning  demands  of  the  note  holder  because  of  credit 
currency,  great  fear  will  fall  upon  all  and  wilder  panic  is  sure 
to  follow.-* 

The  test  of  systems  comes  when  confidence  is  skaken,  not 
when  the  financial  skies  are  clear.  When  credit  is  shaken, 
credit  currency  adds  fuel  to  the  fire,  while  no  man  loses  sleep 
with  a  U.  S.  Government  bond  or  gold  behind  his    Bank    bills. 

What  then  is  "TRUE  CURRENCY  REFORM"  for  the 
people  of  the  U.  S.  ^ 

My  answer  is: 

1st.  Congress  should  at  once  pass  a  law  to  pay  all  public 
and  private  obligations  in  gold  coin. 

2d.  The  present  large  quantity  of  silver  or  silver  certifi- 
cates shall  be  maintained  at  a  parity  witl^  gold  \\'\i\\  the 
pledge  of  the  faith  and  credit  of  the  United  States  to  do  it. 
This  is  all  the  bulky  inferior  currency  this  country  should  be 
asked  to  maintain. 

3d.  The  Government  should  set  apart  in  a  separate  di- 
vision of  issue  and  redemption  department  its  surplus  i::;old  — 
in  excess  of  $50,000,000  for  current  uses — as  a  special  deposit 
for  the  redemption  of    United    States   notes  outstanding,  which 


-    -lO — 

sum  should  be  added  to  as  soon  the  income  of  the  Government 
exceeds  its  expenditures  and  until  its  fund  of  gold  coin  equals 
the  outstanding  notes  in  circulation.  In  the  meantime,  sell 
bonds  if  necessary  to  maintain  its  pledges.  (It  is  no  more  a 
crime  for  Government  to  borrow  than  for  individuals.  Reason 
should  reign  and  noc  political  pettifoggery.) 

4th.  When  any  note  issued  by  the  United  States  is  re- 
deemed in  gold  it  should  not  be  re-issued.  President  McKin- 
ley  is  sound  in  advocating  this  point. 

5th.  vMlovv  anyone  to  deposit  gold  coin  or  bullion  in 
the  issue  and  redemption  division  of  the  Government  in  any 
amount  not  less  then  $1,000  and  receive  therefor  an  equal 
amount  of  gold  certificates. 

GOLD  CERTIFICATES  VS.  CREDIT  CURRENCY. 

Why  the  Government  refuses  to  issue  gold  certificates  un- 
conditionally on  a  deposit  of  gold  coin  or  bullion  and  make 
such  certificates  a  legal  tender,  which  they  are  not  now,  is  be- 
yond my  comprehension.  While  this  country  is  being  flooded 
with  creamy  gold,  why  not  use  it  as  a  basis  for  the  issue  of 
legal  tender  in  unlimited  ciuantities,  because  of  the  inconven- 
ience and  abrasion  of  the  coin  .'  Not  to  make  provision  for  its 
largest  possible  use  to  serve  as  the  best  currency  any  peopje 
can  have,  is  unpardonable.  It  is  now  kicked  about  like  a  foot- 
ball, nobody  wants  it. 

The  Banks  of  England  and  France  issue  legal  tender  notes 
practically  to  an  unlimited  amount  with  coin  reserves,  and 
these  rich  countries  are  full  of  the  yellow  metal,  and  credit 
currency  is  no  nightmare  to  disturb  their  slumbers.  In  these 
days  of  the  greatest  production  of  gold  in  the  world's 
history,  give  the  people  o(  the  United  States  the 
same  opportunities  and  credit  currency  wil'  soon 
give  way  to  a  sufficient  metalic  reserve,  represented 
by  gold  and  silver  certificates,  to  fill  the  channels 
of  circulation  and  remove  any  cause  for  distrust  hereafter. 
The  U.  S.  has  added  without  effort  $200,000,000.,  in  gold  to 
its  circulation  within  the  past  year  or  so.  This  country  now 
holds  over  $900,000,000  of  gold,  which  sum  exceeds  that  of  any 
other  nation.  An  increase  of  about  $200,000,000.,  more  on 
the  part  of  the  Government  would  put  a  gold  dollar  behind 
every  Government  note  outstanding — except  silver 
certificates — and  the         banks  should         take         care 

of  their  issues  themselves.  Political  Economists  declare 
that  rich  countries  like  this  will  have  all  the     coin     they    need, 


— II — 

providiiif^  no  impolitic  act  of  le^^islation  forces  it  out  of   circula- 
tion by  filling  the  channels  with  inferior  currencies. 

Dr.  Adam  Smith  gives  a  pat  illustration,  to-^\•it:  "Money, 
like  wine,  must  always  be  scarce  with  those  who  have  neither 
the  wherewithal  to  buy  or  the  credit  to  borrow  it.  Those  who 
have  either,  \vill  seldom  be  in  want  of  either  the  money  or  the 
wine  which  they  have  occasion  for,  and  a  country  that  has 
wherewithal  to  buy  gold  or  silver,  will  never  be  in  want  of 
those  metals."  I  am  strongly  impressed  that  the  United 
States  has  the  wherewithal  to  buy  all  the  gold  and  silver  we 
need  for  a  basis  for  our  circulating  medium.  If  some  of  the 
poor  sections  of  our  country  are  short  on  circulation,  is  it  not 
because  thev  are  also  short  on  collateral,  or  wherewithal  to  buy 
it? 

NOTE   ISSUES    NOT    A     NECESSARY     FUNCTION     OF 

BANKS. 

6th.  As  rapidly  as  U.  S.  notes  are  redeemed  and  can- 
celled, allow  the  National  Banks  to  issue  currency  based  on 
bonds  to  the  face  of  the  bonds,  and  to  the  amount  of  80  or  90 
per  cent,  of  their  capital  stock,  relieve  them  from  the  tax  of  i 
percent,  on  circulation  and  compel  them  to  redeem  in  gold 
coin.  By  the  time  the  Government  bonds  are  all  paid  by  the 
Government,  discontinue  the  issue  of  bank  currency  entirely 
except  for  the  10  or  20  per  cent,  hereinafter  provided  to  cover 
the  elastic  problem,  thus  leaving  all  National,  State,  and 
Private  banks  on  the  same  footing,  and  wiping  out  the  deep 
seated  prejudice  against  National  Banks.  By  far  a  large 
majority  of  the  banks  of  this  country,  as  well  as  of  Europe,  are 
doing  business  without  the  issue  of  currency,  conclusively 
proving  that  it  is  not  necessary  for  us  to  cling  to  that  idea. 
Long  before  the  bonds  of  the  Government  will  be  paid,  this 
great  country  will  have  all  the  coin  it  needs  as  a  basis  for  all 
circulation  and  the  subject  of  credit  currency  will  be  a  bugbear 
of  the  past. 

ELASTICITY. 

As  to  the  Elastic  Problem,  that  subject  has  troubled  the 
financiers  and  economists  for  ages  and  it  is  not  satisfactorily 
solved  yet.  Keep  your  credit  good,  and  with  easy  and  quick 
transportation,  the  world  will  lend  to  you  in  need.  As  to  hav- 
ing cash  enough  to  fill  all  demands  in  times  of  panic,  that  time 
will  never  come. 

If  we  should  issue  credit  currency  at  all  to  cover  emergen- 
cies, the  plan  proposed  by  Comptroller  Dawes  is  eminently  the 


12 — • 

soundest,  and  if  a  rii^ht  to  issue  currency  equal  to  lo  or  20  per 
cent,  of  a  bank's  capital  is  allowed,  it  should  be  subject  to  a 
tax  of  ^  of  I  per  cent,  per  month  while  it  is  outstanding,  and 
no  bank  should  keep  out  such  circulation  to  exceed  three 
months  in  any  year  without  the  consent  of  the  Comptroller  of 
the  Currency.  This  tax  should  be  held  as  a  reserve  fund  to 
cover  any  losses  on  account  of  failures  of  banks  to  redeem  in 
full.  Or,  instead  of  this  plan,  legalize  Clearing  House  Certifi- 
cates and  give  them  form  for  general  use  in  case  of  panic,  and 
the  best  business  talent  will  soon  see  them  cancelled  after  their 
temporary  work  is  done. 

BRANCH   BANKS. 

As  to  branch  banks  in  the  U.  S.  I  will  simply  say.  If  any 
political  party  fathers  the  plan  and  carries  it  to  a  conclusion, 
with  the  feeling  in  this  country  against  monopolies,  the  result 
will  be  the  doom  of  the  country  banker's  individualism  and  the 
downfall  of  the  party  responsible  for  the  law. 

No  man  can  charge  me  with  bad  motives  for  opposing  as- 
set currency,  for  if  banks  make  more  money  under  the  pro- 
posed system,  the  bank  of  which  I  am  president  will  share  in 
the  benefits.  I  oppose  the  plans  because  I  consider  them  acts 
of  inflation  under  unsafe  restrictions,  the  result  of  which  is  sure 
to  be  financial  disaster. 

The  whole  matter  is  now  with  our  statesmen.  Will  they 
rise  to  the  dignity  of  the  occasion  by  giving  us  True  Currency 
Reform  instead  of  giving  the  toper  another  drink  and  calling 
that  reform  ? 

Let  us  not  take  a  single  step  backward  in  an  attempt  to  lay 
a  foundation  on  the  shifting  sands  of  a  credit  currency ;  but 
let  us  press  forward  without  flinching,  disregarding  the  political 
trimmers  and  lay  such  a  sure  metallic  foundation  for  our  future 
greatness,  that  we  shall  soon  see  the  World's  financial  center 
planted  in  New  York  instead  of  London  where  it  has  been 
since  the  adoption  by  Great  Britian  of  the  Gold  Standard  in 
I8i6. 

When  this  is  accomplished  the  L^nited  States  will  be 
supreme  in  Agriculture,  Manufacturing,  Mining,  Internal 
Transportation,  Banking  Power,  Wealth,  Annual  Income  and 
Humanitarianism  as  shown  by  the  late  war.  Great  Britain 
will  alone  then  exceed  us  in  Foreign  Commerce  and  Shipping, 
which  supremacy  the  indomitable  Yankee  is  sure  to  win  before 
the  20th  century  has  long  run  its  course. 

ANDREW  JAY  FRAME. 
Waukesha,  Wisconsin,  April  1899. 


AA    001  023  115    7 


